Money Isn't Everything

Managers must move beyond the mindset that cash motivates their troops

Article |
Sat, 04/07/2012 - 11:00

by: Paul Nolan

At a time when companies need engaged leaders and other employees willing to exceed expectations without promise of immediate increased financial remuneration, a new wave of respected thought leaders, including McKinsey, Harvard Business Review, PricewaterhouseCoopers and Aberdeen, acknowledge the effectiveness and strategic business value of non-cash incentives.

Aberdeen’s annual “Sales Performance Management Study” highlighted that best-in-class organizations — those that outperform rivals across all major financial categories — are more than twice as likely as all other firms to provide non-cash incentives. Specifically, 21% of the best-in-class organizations used R&R programs; only 10% of the non-best-in-class organizations used them.

According to the Incentive Research Foundation (irf.org), studies show that organizations that have reward systems in place — to reinforce stellar performance and sustain cultures that support collaboration and openness — outperform those organizations that don’t have reward systems. Of course, non-cash incentive programs don’t work alone. Offering more meaningful and challenging work, along with a performance management process that’s transparent and trustworthy, are essential to attracting and retaining talent.

Research released by McKinsey in 2009, a time when companies large and small were cutting back on all incentives and bonuses, reinforced the notion that financial rewards mainly generate short-term boosts of energy, which can have damaging, unintended consequences. Non-cash motivators — praise from immediate managers and the chance to lead projects or task forces — can be more effective motivators than the three highest-rated financial incentives: cash bonuses, increased base pay, and stock or stock options.

Unfortunately, the McKinsey report states, businesses have not only decreased their reliance on financial incentives during the economic downturn, they have cut back the use of non-financial ones as well. Thirteen percent of respondents to a survey report that managers praise their subordinates less often; 20 percent say opportunities to lead projects or task forces are scarcer; and 26 percent report that leadership attention to motivate talent is less forthcoming.

Why would managers abandon these proven effective motivators that don’t bite into operating expenses? The McKinsey report posits that many managers wrongly hesitate to challenge the traditional managerial wisdom that money is what really counts.

“Managers see motivation in terms of the size of the compensation,” one HR director from the financial services industry explained.

McKinsey also points out that non-financial ways to motivate do, on the whole, require more time and commitment from senior managers.

Some far-thinking companies, however, are working hard to understand what motivates employees and to act on their findings. One biotech company has reframed the incentives issue by putting the focus on “recognition” instead of “reward” in order to inspire a more thoughtful discussion about what motivates people.

“One-on-one meetings between staff and leaders are hugely motivational,” an HR director from a mining and basic materials company stated. “They make people feel valued during these difficult times.”

By contrast, the McKinsey survey respondents rated large-scale communications events — town hall meetings common during economic crisis — as one of the least-effective non-financial motivators, along with unpaid or partially paid leave. While communication is critical, attempts to convey messages about the state of the business often have some spin, one HR director explained.

With profits returning to some geographies and sectors, there are signs that bonuses are making a comeback as well. Smart managers will keep in mind that a talent strategy that emphasizes the frequent use of the right non-financial motivators will benefit most companies in bleak and fair times.

The most recent Globoforce Work Mood Tracker, which surveyed employed U.S. workers to determine how recognition affects their engagement at work, has some disturbing findings:

More than one-third (39 percent) of workers don’t feel appreciated at work and more than half (52 percent) aren’t satisfied with how much recognition they receive. Even worse, 17 percent of employees say they have never been recognized for their on-the-job efforts.

The study reports only 37 percent of job seekers feel appreciated by their current employers. In contrast, 75 percent of American workers who are not seeking new employment say they feel appreciated in their current jobs.

Worried that you’ve waited too long to praise your high performers? Even when employees have one foot out the door, showing a little appreciation can do wonders. A whopping 77 percent of employees who were dissatisfied with their employers and looking for new jobs say they’d work harder if their efforts were better recognized.